A number of important milestones were reached in 2017 on the path away from coal in parallel with substantial growth in renewable generation. At the same time, exciting developments are taking place in sales, heating, distribution and electric vehicle charging infrastructure. Through collaboration between our various business units we are meeting customers' needs for new energy solutions and demonstrating the value of being an integrated energy company.
A profitable company again
For 2017 Vattenfall reported a positive result for the first time in five years, with a net profit of SEK 9.6 billion and an underlying operating profit of SEK 23.3 billion. The Board of Directors proposes a dividend of SEK 2 billion. Our customer-centric strategy focused on sustainability, flexibility and cost control is leading us in the right direction and is now generating results. After a prolonged period of strained market conditions and large writedowns of asset values, Vattenfall today is a stronger and more resilient company. Our production portfolio is dominated by climate-neutral energy sources. New innovative products, services and partnerships are helping our customers lower their carbon emissions. During the year we delivered on our investment projects and costcutting at the same time that availability at our production plants increased. The capital structure is stable, and profitability has improved significantly. In many respects Vattenfall is a transformed company, and the task now at hand is to continue driving development forward through a high pace of investment but also strict cost control.
The market trend supports our transformation
The energy landscape that Vattenfall works in continues to change at a fast pace, as investments in renewable generation continue to take hold. Both the wind and solar power industries have matured considerably, with sharply falling costs and growing competitiveness as a result. The change in Vattenfall's business portfolio and greater growth in renewable energy production have contributed to a changed risk profile, which is also reflected in our new financial targets.
While development of renewable production has benefited from state support, technological progress and economies of scale are the main reasons that wind and solar have taken giant leaps forward in recent time and become more competitive. The marginal cost for these renewable energy sources is negligible and indirectly affects fossil-fired plants, which are increasingly left idle from production. Parallel with this, the cost of batteries continues to fall, and their capacity is improving. The prospects for electric-powered cars are thereby very favourable. Added to this, the entire distribution infrastructure must be adapted to new conditions. In short, it is an exciting time to be active in the energy industry.
To adapt to the future, Vattenfall is going through a fundamental transformation. Owing to the rapid pace of development, our need to develop and renew our competence in areas such as decentralised, customer-centric solutions and digitalisation is more acute than ever.
In 2017 "Vattenfall InHouse" was launched – a new energy solution that clearly embodies how we can be expected to work differently in the future. Large property owners and tenant-owner associations in Sweden are being offered sustainable solutions for electricity, heat and electric vehicle charging together with system optimisation. The concept is a result of close cooperation between our various business units, which have come up with a holistic solution to a distinct customer need. We are also running one of the first pilot projects for micro-networks at the same time that we are developing new offerings in both solar and batteries in the Continental markets, such as solar panels for apartment buildings in Berlin.
Good progress in our investment projects
During the year a number of important investment projects were successfully completed. The Sandbank (288 MW) offshore wind farm in Germany was finished three months ahead of schedule. Our largest onshore wind farm in the UK, Pen y Cymoedd (228 MW), began operating at full capacity. We also made good progress in the investment programme for the distribution distribution operations in both Sweden and Germany. On top of all this, we continued our expansion of electric vehicle infrastructure, where the InCharge network now includes more than 4,000 charging points.
The national energy agreement in Sweden in 2016 set the stage for a longterm positive future for nuclear power in Sweden. Investment decisions for independent core cooling have been made for both Forsmark and Ringhals, which means that we can ensure operation until the 2040s and enable a cost-effective shift to a renewable system. The Swedish Radiation Safety Authority (SSM) now also recommends that the government grant a licence for a final repository for spent nuclear fuel in Forsmark, but wants to see additional documentation from SKB regarding the canisters for spent nuclear fuel.
Parallel with this, hydro power must adapt to more modern environmental requirements. Toward this end, together with eight other hydro power owners we have taken the initiative to establish an environmental fund to finance related measures.
Working for a smaller carbon footprint
The climate is a central issue for Vattenfall that strongly influences our strategic decisions. Our company shall enable a fossilfree society. As part of our action plan for reduced CO2 emissions, in 2017 we proceeded with our phase-out of coal-fired power generation in Berlin with the conversion of a lignite-fired power station, Klingenberg, to natural gas, and took the decision to close a hard coal–fired plant, Reuter C.
More long-term, however, we can make the biggest difference by enabling the electrification of transports, heating and industrial processes. We are working together with customers and partners in a number of R&D projects focusing on energy solutions to achieve a smaller carbon footprint.
Responsibility to respect human rights
Apart from the climate issue, human rights are reflected as a distinct part of the UN's 17 Sustainable Development Goals. During 2017 our focus was on strengthening our internal level of knowledge and continuing to integrate human rights in our processes and daily work. An update of the Code of Conduct for Suppliers was an important step, since we have identified that our greatest risks related to human rights lie in purchases of fuel and other products and services from high-risk countries. Among other measures taken during the year, we performed an evaluation of our supply chain for purchases of hard coal from Colombia. We identified risk areas and are now engaged in a dialogue on how to help the mining companies strengthen their obligation to respect human rights.
Our people make the difference
As already mentioned, a lot is happening in the world around us and in our company, but it is at the individual level that we will really make a difference going forward. The power to drive Vattenfall into the future lies with our employees. Although we have a lot of work ahead of us, it is gratifying to note that we achieved a considerably improved engagement score in our annual employee survey. I want to take this opportunity to thank all our employees for their exceptional work during the past year.
Fossil-free within a generation
The path forward for Vattenfall is clear, ambitious and inspiring. It's not enough to be efficient – we must also be innovative in our ways of working. It's not enough to invest in renewables – we must tap into the full potential that exists in electrification and digitalisation. This is how we can help our customers live and work entirely without fossil fuels. We want to make it possible within a generation. It is toward this purpose that we act in practice – today and in the future.
President and CEO